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Boosting Exports: Will FTP Succeed?

Published on Fri, Apr 26,2013 | 14:24, Updated at Fri, Apr 26 at 14:24Source : 

By: Amit Bhagat, Associate Director – Tax & Regulatory Services, EY

The Annual Supplement of the FTP was unveiled on 18 April 2013 by the Minister of Commerce, Anand Sharma. It appears that through the supplement, an effort has been made to boost exports, which is evidently on a decline on account of global economic slowdown. The scope of some of the existing schemes has been considerably widened. Documentation and procedural requirements for availment of benefits under various schemes have also been simplified, which should be helpful in reducing transaction time and costs for the exporters.

One of the key amendments introduced is the rationalisation of the popular Export Promotion Capital Goods (EPCG) Scheme. Previously, dual EPCG Schemes (Zero percent/ Three percent) were available for exporters based upon sectors and product imported. This scheme has now been replaced by a single Zero percent EPCG Scheme, covering import of capital goods (for manufacture of goods for export) under all sectors. The same is expected to provide impetus to import capital goods (technology enhancement) by all sectors, provided prescribed export obligation can be met.

Further, to promote domestic procurement of capital goods, quantum of export obligation required to be fulfilled under EPCG scheme has been reduced by 10%, provided exporters purchase capital goods from domestic manufacturers.  Similarly, for exporters located in Jammu and Kashmir, a reduction of 25% of the export obligation, under said scheme, has been offered.

To revive confidence and encourage investment in SEZs, various measures have been announced. The most relevant amongst such measures is 50% reduction in Minimum Land Area Requirement for setting up of various types of SEZs.  Also, minimum land requirements for setting up IT/ ITES SEZ have been waived. The same clearly communicates that the Government is sensitised towards the land acquisition costs and other related concerns and is willing to provide relief for the same.

Further, a concept of Graded Scale for Minimum Land Criteria has been introduced to more efficiently utilise the infrastructure facilities in a Sector Specific SEZ. This has been done by permitting an additional sector for each contiguous 50 hectare parcel of land. The Minimum Built up area requirement has also been relaxed for cities other than Metros.  In this regard, the Commerce Minister expressed confidence that the measures will give boost to SEZs in Tier II and Tier III cities, creating employment and growth.

A long awaited change which has been allowed is the exit policy. The SEZ Policy will now be amended to allow transfer of ownership of existing SEZ units (including sale).

The scope of schemes such as Focus Market Scheme has been widened by addition of new markets eligible for the benefit. There seems to be a definite incline towards encouraging exports to Latin American and African countries. Also, a remarkable increase has been made in the number of products eligible for benefits under Focus Product Scheme, especially from pharmaceuticals, chemicals, electronics and textile sectors.

The duty scrips earned under such schemes can now be used for payment of service tax on procurement of services as well.  Further, the duty scrips can now be also used to pay application fee for obtaining import authorisations, composite fee, and value shortfalls in prescribed export obligations.

Benefit under 2% interest subvention scheme has been extended to textile made up articles and 134 new sub-sectors in engineering sector.  This has received positive feedback from the said sectors, which are already reeling due to high interest costs. 
Specific measures have been introduced to simplify procedural and documentation requirements to streamline the processes relating to real-time availment of benefits. The requirement for submission of hard copies of shipping bills for obtaining the discharge certificates under Advance Authorisation, EPCG Scheme etc, has been dispensed with.

Although, most of the amendments seem to be predisposed towards liberalising the conditions for availment of benefits, a few stringent conditions have also been introduced. For example, the import of second hand capital goods has been specifically disallowed under the revised EPCG Scheme. This seems to imply that the benefit under the scheme is focused on import of new technology (new capital goods) only. Also, the fulfilment of export obligation through group companies would also no longer be considered under the scheme. The same entails adherence to stricter compliances under the policy by the manufacturer availing the benefit.

Overall, the intention behind the recent amendments seems to be clearly inclined towards widening the base of exporters eligible for benefits under various schemes, to address decline in exports, to stabilise the Current Account Deficit by earning foreign exchange, and to ease the procedural complexities. The Commerce Minister, Anand Sharma, while announcing the annual supplement, stated “I hope that the measures which we have announced today will go a long way in providing much needed support for exports.”

The announcements made by the Commerce Minister have received a mix response from the export community.  While, some of the major players have complimented the Government for taking measures to increase their competitiveness in the overseas markets, others feel that no ‘big ticket’ announcements have been made.

(Views expressed are personal)


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